Trading Momentum Breakouts in the Forex Market

After a few years of calm, volatility had spread from the stock markets to the forex market and this means a lot of potential opportunities for us, traders. However, with the latest forex volatility spike, a question occurs: how can traders benefit from this market environment more efficiently? There could be many answers, but one of them is “momentum breakouts”. If you are relatively new to the world of trading, stick to this article, since you will be able to find out some interesting things.

Why momentum breakouts?

We’re living a historic period and no financial expert is now able to predict what could happen in the future. Since the fundamental analysis is not worth a dime now, we as forex traders must respect technicals. It’s crucial to have key support/resistance levels in mind when we make our trading plans for the day.

At the same time, we must leave aside any personal beliefs about the market and focus our whole attention on trading with the momentum. Don’t try to outsmart the market, because you’re going to lose. Trading momentum breakout will be an optimal way to open trades and be exposed to the dominant market direction.

How can someone trade momentum breakouts?

In order to make things simple, we would like to work with a concrete recent example. Below is the EURUSD 1h chart that goes back to March 11th, 2020. We’ve highlighted three broken support areas that had been treated as resistance after being broken.

EURUSD momentum breakouts

Source: tradingview.com

You can easily notice how impulsive the red candles had been and how much ground they’ve managed to cover. All that traders had to do is wait for the market to break the support and then wait for a retest. Three times out of three, the market had respected the levels, resulting in some good trading opportunities, without having to see trades in the negative for a long time.

While all the other traders would have struggled to find some trading opportunities, focusing on the “US dollar trade” had been the most appropriate. With all money markets frozen, there is a massive dollar shortage with despite repeated interventions and coordinated actions from central banks, the US dollar keeps getting stronger.

Hopefully, this article managed to provide you some insights and you will be able to look after similar market imbalances where there is a dominant side (buyers or sellers) in control over the order flow.

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